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The sectoral distribution of money supply in the Euro area

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Author Info
Giuseppe Ferrero () (Banca d'Italia)
Andrea Nobili () (Banca d'Italia)
Patrizia Passiglia () (Banca d'Italia)

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Abstract

The strong and prolonged deviation of money growth from its reference value since 2001 has caused concern among policy-makers about the upside risks to price stability from monetary developments. In this paper we provide evidence that these risks might be smaller than previously assumed. We provide a sectoral breakdown of money holdings and show that current excess liquidity conditions are in some measure related to the acceleration of non-bank financial intermediariesÂ’ money demand, as well as to the accumulation of marketable instruments. Such increases are likely to be related more to portfolio choices than to transaction motives. We also find evidence from balance sheet data on investment funds that points to a general increase of this sector in the economy, rather than to a higher degree of liquidity of their asset positions. This is likely to imply that recent dynamics reflect, to a large extent, a permanent change in the financial structure of the economy. Finally, our sectoral analysis suggests that the threat to price stability did not appear before the end of 2005, which is also when the ECB started to raise the official interest rates.

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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 627.

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Date of creation: Apr 2007
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Handle: RePEc:bdi:wptemi:td_627_06

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Related research
Keywords: money holding sector; excess liquidity; money supply;

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Find related papers by JEL classification:
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. G. Coenen & J.-L. Vega, 2001. "The demand for M3 in the euro area," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(6), pages 727-748. [Downloadable!]
    Other versions:
  2. K. Alec Chrystal & Paul Mizen, 2005. "Other financial corporations: Cinderella or ugly sister of empirical monetary economics?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(1), pages 63-80. [Downloadable!]
    Other versions:
  3. Claus Brand & Nuno Cassola, 2000. "A money demand system for Euro area M3," Working Paper Series 39, European Central Bank. [Downloadable!]
  4. Ireland, Jonathan & Wren-Lewis, Simon, 1992. "Buffer Stock Money and the Company Sector," Oxford Economic Papers, Oxford University Press, vol. 44(2), pages 209-31, April. [Downloadable!] (restricted)
  5. Leonardo Gambacorta, 2001. "Bank-specific characteristics and monetary policy transmission: the case of Italy," Working Paper Series 103, European Central Bank. [Downloadable!]
    Other versions:
  6. Gerlach, Stefan & Svensson, Lars E. O., 2003. "Money and inflation in the euro area: A case for monetary indicators?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1649-1672, November. [Downloadable!] (restricted)
    Other versions:
  7. Carmine Trecroci & Juan Luis Vega-Croissier, 2000. "The information content of M3 for future inflation," Working Paper Series 33, European Central Bank. [Downloadable!]
  8. Ryland Thomas, . "The Demand for M4: A Sectoral Analysis Part 2 The Corporate Sector," Bank of England working papers 62, Bank of England. [Downloadable!]
  9. Claudia Biancotti, 2006. "A Dual-Regime Utility Model for Poverty Analysis," Temi di discussione (Economic working papers) 603, Bank of Italy, Economic Research Department. [Downloadable!]
  10. Laidler, David, 1997. "Notes on the Microfoundations of Monetary Economics," Economic Journal, Royal Economic Society, vol. 107(443), pages 1213-23, July. [Downloadable!] (restricted)
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  11. Hallman, Jeffrey J & Porter, Richard D & Small, David H, 1991. "Is the Price Level Tied to the M2 Monetary Aggregate in the Long Run?," American Economic Review, American Economic Association, vol. 81(4), pages 841-58, September. [Downloadable!] (restricted)
  12. Annick Bruggeman & Paola Donati & Anders Warne, 2003. "Is the demand for Euro area M3 stable?," Working Paper Series 255, European Central Bank. [Downloadable!]
  13. Ryland Thomas, . "The Demand for M4: A Sectoral Analysis. Part 1 - The Personal Sector," Bank of England working papers 61, Bank of England. [Downloadable!]
  14. Caruso, M., 1996. "Stock Prices and Money Velocity: A Multi-Country Analysis," Papers 264, Banca Italia - Servizio di Studi.
  15. Hofmann, Boris, 2006. "Do monetary indicators (still) predict euro area inflation?," Discussion Paper Series 1: Economic Studies 2006,18, Deutsche Bundesbank, Research Centre. [Downloadable!]
  16. Carsten Detken & Frank Smets, 2004. "Asset price booms and monetary policy," Working Paper Series 364, European Central Bank. [Downloadable!]
  17. Alessandro Calza & Dieter Gerdesmeier & Joaquim Vieira Ferreira Levy, 2001. "Euro Area Money Demand: Measuring the Opportunity Costs Appropriately," IMF Working Papers 01/179, International Monetary Fund.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Setzer, Ralph & Wolff, Guntram B., 2009. "Money demand in the euro area: new insights from disaggregated data," MPRA Paper 17483, University Library of Munich, Germany. [Downloadable!]
  2. Lucas Papademos, 2007. "The Effects of Globalization on Inflation, Liquidity and Monetary Policy," NBER Chapters, in: International Dimensions of Monetary Policy National Bureau of Economic Research, Inc. [Downloadable!]
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